Maersk Line to Dump Panama Canal for Suez as Ships Get Bigger

Maersk Line, the world’s biggest container shipping company, will stop plying through the Panama Canal to move goods from Asia to the U.S. east coast as bigger ships help the company move it profitably through the Suez Canal. 

Maersk Line will send vessels through the Suez Canal that can carry as many as 9,000 20-foot boxes at a time, instead of using two 4,500-box-vessels through Panama Canal, Soeren Skou, chief executive officer of Maersk Line, recently said in Singapore. The last sailing through Panama will be on April 7 and the first service through Suez will be a week later, the company said in an e-mail statement. 

“The economics are much, much better via the Suez Canal simply because you have half the number of ships,” Skou said.“One of the reasons for why this is happening now is that the cost for passing through the Panama Canal has gone up. At the end of the day, it comes down to cost.” 

Shipping lines, including Maersk Line and Neptune Orient Lines Ltd. (NOL), have cut costs, reduced speed of their fleet and sold some vessels to contend with freight rates that are below break-even levels. Maersk Line, based in Copenhagen, has said pressure on charges will remain this year. 

Fees for ships to go through the Panama Canal have tripled in the past five years to $450,000 per passage for a vessel carrying 4,500 containers, Skou said. The distance from China to the U.S. east coast via the Suez Canal is about 4 percent to 5 percent more, he said. 

A $5.25 billion expansion of Panama Canal, the waterway handling 5 percent of global trade, will open by June 2015, six months later than originally planned. The canal connects the Atlantic and Pacific oceans and is used by as many as 14,000 vessels a year.

Whether Maersk will use the Panama Canal after the expansion will depend on the economics, Skou said. 

Source: Bloomberg Businessweek